Delivering value the B. e. S. t. Way

Transcription

1 Annual Report Delivering value the B. e. S. t. Way

2 Contents Corporate overview Statutory reports 1 Corporate Information 2 Delivering Value the B.E.S.T. Way 4 From B.O.T to B.E.S.T. 6 Milestones 8 Extending Value Through Pan India Operations 12 Key Performance Indicators 14 Chairman and Managing Director s Communique 16 Clear Focus on BOT 18 Strong Execution Capabilities 20 Value Creation by Stabilising Operations 22 Unlocking Value by InvIT 24 Building Seamless Connections 26 Operational Highlights 28 Community Welfare 30 The Board of Directors 31 The Executive Team 33 Management Discussion and Analysis 37 Board s Report 78 Corporate Governance Report FinanCial StatementS Consolidated Financial Statements 94 Independent Auditor s Report 98 Consolidated Balance Sheet 99 Consolidated Statement of Profit and Loss 100 Consolidated Cash Flow Statement 102 Standalone Financial Statements 139 Independent Auditor s Report 144 Balance Sheet 145 Statement of Profit and Loss 146 Cash Flow Statement Form AOC - I Forward-Looking Statement In this Annual Report, we have disclosed forward-looking information to enable investors to comprehend our prospects and take investment decisions. This report and other statements - written and oral - that we periodically make contain forward-looking statements that set out anticipated results based on the management s plans and assumptions. We have tried, wherever possible, to identify such statements by using words such as anticipate, estimate, expects, projects, intends, plans, believes, and words of similar substance in connection with any discussion of future performance. We cannot guarantee that these forwardlooking statements will be realised, although we believe we have been prudent in our assumptions. The achievements of results are subject to risks, uncertainties and even inaccurate assumptions. Should known or unknown risks or uncertainties materialise, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Readers should keep this in mind. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

3 Corporate Information ADVISOR TO THE BOARD Mr. Rajkamal R. Bajaj BANKERS/LENDERS TO THE IRB GROUP Canara Bank IDFC Bank Union Bank of India Indian Overseas Bank Indian Bank Bank of India IDBI Bank HDFC Ltd Andhra Bank Corporation Bank Punjab National Bank Bank of Baroda Bank of Maharashtra IIFCL ICICI Bank Allahabad Bank YES Bank AUDITORS S. R. Batliboi & Co. LLP Gokhale & Sathe Statutory Auditor AUDITORS OF SUBSIDIARIES S. R. Batliboi & Co. LLP MKPS & Associates A. J. Kotwal & Co. M. Bhaskara Rao & Co. R. K. Dhupia & Associates Gokhale & Sathe REGISTRAR & TRANSFER AGENT Karvy Computershare Pvt. Ltd. Karvy Selenium Tower B, Plot 31-32, Gachibowli Financial District, Nanakramguda, Hyderabad T: F: REGISTERED OFFICE 3rd Floor, IRB Complex, Chandivli Farm, Chandivli Village, Andheri (E), Mumbai T: F: E: info@irb.co.in Suresh Surana & Associates LLP, Internal Auditor 1

4 Delivering Value the B.E.S.T. Way! Annual Report Business, we firmly believe, is about delivering value. This demands prudence in decisions, adoption of best practices, excellence in actions, and always keeping in perspective the wider interests. It calls for not only steadfast commitment to the tried and tested practices that have helped deliver value in the past, but also requires embracing the new. It means not just fulfilling stakeholder expectations but exceeding it. This core belief of delivering value permeates every stage of our business operations. A strict evaluation process is followed before we bid for Build-Operate- Transfer (BOT) projects, in many a case, even staying away from projects where there is no significant value or where intense competition is likely to erode the value. Choosing to bid for projects that have a better internal rate of return (IRR) is our first step towards generating value. Well begun is half done, as they say. For every project that we undertake, we are committed to delivering desired outcome. Supported by state-of-the-art equipment and skilled workforce, we deliver better value by executing projects on time and within budget. Meeting high-quality standards, our road projects are indeed a testimony to our exemplary execution skills. 2

5 Corporate Overview Statutory Reports Financial Statements A project needs to sustain value creation over a period of time before the cost of capital can be completely recovered. Our stabilising actions for projects for fostering value are manifest in our operation & maintenance which has been generating a consistent stream of revenue on the uptrend. What next? Is there a way to deliver even more value? Our industry experience and business acumen guides us, there is. By transferring revenue generating road projects to an Infrastructure Investment Trust and monetising these assets, thus facilitating greater investor participation, and propelling infrastructure creation. Bid. Execute. STABILISE. Transfer. (B.E.S.T.) This is our guiding principle for superior value creation, and which we are confident will help us unlock greater value and deliver more to each of our stakeholders. We believe in Delivering Value the B.E.S.T. Way! 3

6 Delivering Value the B.E.S.T. Way! Annual Report From B.O.T to B.E.S.T. A journey of transformative value creation Incorporated in 1998, IRB Infrastructure Developers Ltd. is India s leading infrastructure development company in the roads and highway sector. Since our first project, our actions have been guided by the sole objective of delivering value. Over the years, we have reinforced our commitment by delivering large, technically complex projects across India, on difficult terrains and in a tough industry environment. Building seamless connections and facilitating economic and social progress, we are proud to be part of India s transformation. Our core strength lies in our ability to execute Build-Operate- Transfer (BOT) road and highway projects, including sections of the Golden Quadrilateral and the National Highways. We developed India s first ever BOT project (Thane Bhiwandi Bypass) and have one of the largest BOT portfolios (operational projects and projects under construction) in the country with a total length of around 9,846 lane km. We also maintain the infrastructure assets as per concession agreement requirements, enhancing sustainability for all stakeholders Community, Client and the Company. Our focus on enhancing value is now taking us on promising new roads. With tremendous potential to unlock tied-up capital, Infrastructure Investment Trust (InvIT) can be a game changer in our endeavour to maximise growth opportunities. It will enable us to unlock capital for further investment into infrastructure projects. From BOT to B.E.S.T., our commitment to value creation continues unabated. The IRB Edge India s leading road BOT developer Integrated approach to roads and highway development Disciplined and prudent financial management Holds one of the largest road BOT portfolio in the country In-house project execution capabilities Steered by a visionary and experienced management team 4 Backed by a skilled and qualified workforce

7 Corporate Overview Statutory Reports Financial Statements Numbers Reflecting our Value Creation (as on March 31, 2016) 20 BOT projects in portfolio 14 BOT projects in operation ` 9,746 Crores Total Order Book ` 30,933 Crores Total value of assets in operation/under implementation 13.17% 9,846 share in the Golden Quadrilateral lane km in BOT portfolio Flyovers Bridges (includes railway cover bridges, major and minor bridges) Vehicle underpasses Toll plazas 521 Toll lanes List of structures include structures built/under construction 5

8 Delivering Value the B.E.S.T. Way! Annual Report Milestones surpassed. Value delivered. A recap of our successful journey Our intent to contribute to the development of the nation s highway infrastructure, has led us to take up larger-size highway projects in different geographies. While doing this, we have generated value for our stakeholders, surpassed internal milestones and established new benchmarks in the industry. The highlights of our journey so far. FY Cumulative Lane Kms 4,768 FY Cumulative Lane Kms 2,104 Key Highlights Initial Public Offering (IPO) oversubscribed and ` Crores raised at an issue price of ` 185 per share FY Cumulative Lane Kms 3,506 Key Highlights First ever Airport Project in IRB s Portfolio (Greenfield Airport Project in Sindhudurg, Maharashtra) awarded; Project Development Agreement executed with MIDC Awarded Surat - Dahisar Project, the first mega highway project of the country Awarded Integrated Road Development (IRD) programme in Kolhapur city Key Highlights Awarded 3 National Highways Authority of India (NHAI) Projects: - Amritsar - Pathankot, Punjab - Talegaon - Amravati, Maharashtra - Jaipur - Deoli, Rajasthan FY Cumulative Lane Kms 5,452 Key Highlights Achieved financial closure for: - Amritsar - Pathankot - Talegaon - Amravati - Jaipur - Deoli Awarded Tumkur - Chitradurga, Karnataka, Project of NHAI Achieved financial closure for Tumkur - Chitradurga Project 6

9 Corporate Overview Statutory Reports Financial Statements FY Cumulative Lane Kms 9,846 FY Cumulative Lane Kms 7,472 Key Highlights Awarded Goa / Karnataka border to Kundapur Project on NH-17 in Karnataka Acquired MVR Infrastructure and Tollways Pvt. Ltd. Key Highlights Awarded Mumbai - Pune Phase II Project by MSRDC - Yedeshi - Aurangabad Project in Maharashtra by NHAI - Kaithal - Rajasthan Border Project in Haryana by NHAI Emerged as preferred bidder for the project of Six Laning of Agra - Etawah section of NH-2 Achieved financial closure for Solapur - Yedeshi & Yedeshi - Aurangabad Projects Successfully raised ` 440 Crores by way of QIP FY Cumulative Lane Kms 6,439 Key Highlights Awarded the Ahmedabad - Vadodara Project, the first ever Ultra Mega highway project of NHAI in Gujarat Achieved financial closure for the Ahmedabad - Vadodara Project FY Cumulative Lane Kms 7,867 Key Highlights Awarded Solapur - Yedeshi Project in Maharashtra Achieved financial closure for Goa - Kundapur Project FY Cumulative Lane Kms 9,846 Key Highlights Received registration for India s first InvIT Awarded Agra - Etawah Project in Uttar Pradesh Commenced toll collection on NH-8 arm of Ahmedabad- Vadodara Project 7

10 Delivering Value the B.E.S.T. Way! Annual Report Extending value through pan-india operations 8

11 Corporate Overview Statutory Reports Financial Statements Increasing our geographic presence has been our focus for several reasons. Firstly, we believe in better connected India in terms of highway connectivity; an India, where states are seamlessly linked so as to facilitate passenger and freight movement; a nation where progress and prosperity is no longer confined to selected regions; a country, where development reaches the door of each and every household. Secondly, when we extend our footprint, we are expanding and diversifying our revenue streams, thereby generating sustainable value for all our stakeholders and taking us on the trajectory of higher growth. IRB s projects are now operational or under implementation in eight states, with plans to extend operations across more states. Current Portfolio (as on March 31, 2016) BOT Portfolio - State-wise % Rajasthan 6% Punjab 4% Karnataka 15% Gujarat 21% Tamil Nadu 3% Haryana 7% Uttar Pradesh 7% Maharashtra 37% Operational Projects 14 Projects under 6 Implementation Total BOT Projects 20 Order Book Split (%) Order Book as on March 31, 2016 Yedeshi Aurangabad 20% Kaithal Rajasthan Border 13% Order Book Composition Amount in ` Crores Goa Kundapur 12% O & M Contracts 18% Solapur Yedeshi 5% Mumbai-Pune Phase II 7% Sindhudurg Airport 3% Agra Etawah 22% Ongoing BOT Projects 5,810 BOT Projects in O&M Phase 1,803 BOT Projects - Construction yet to commence 2,133 Total 9,746 9

12 Delivering Value the B.E.S.T. Way! Annual Report Extending value through pan-india operations Operational Projects Projects Under Implementation OPERATIONAL PROJECTS MAHARASHTRA 1 Talegaon - Amravati 2 Mumbai - Pune 3 Thane - Ghodbunder 4 IRDP - Kolhapur 5 Thane - Bhiwandi Bypass 6 Pune - Nashik 7 Pune - Solapur GUJARAT 8 Bharuch - Surat 9 Surat - Dahisar 10 Ahmedabad - Vadodara RAJASTHAN 11 Jaipur - Deoli PROJECTS UNDER IMPLEMENTATION Maharashtra 1 Solapur - Yedeshi 2 Yedeshi - Aurangabad 3 Mumbai-Pune (Phase II) Karnataka 4 Goa / Karnataka Border to Kundapur Haryana 5 Kaithal - Rajasthan Border Uttar Pradesh 6 Agra - Etawah Map not to scale. Map shows approximate location of Projects for indication purpose only. 10 KARNATAKA 12 Tumkur - Chitradurga TAMIL NADU 13 Omallur - Salem - Namakkal PUNJAB 14 Pathankot - Amritsar

13 Corporate Overview Statutory Reports Financial Statements ` 30,933 Crores Total Cost of projects in operation and under implementation OPERATIONAL PROJECTS 9,846 Lane Kms Total Length of projects in operation and under implementation Location Project Length (Kms) Project Cost (~` in Crores) MAHARASHTRA Talegaon - Amravati Mumbai - Pune , Thane - Ghodbunder IRDP - Kolhapur Thane - Bhiwandi Bypass Pune - Nashik Pune - Solapur GUJARAT Bharuch - Surat ,470 Surat - Dahisar ,537.2 Ahmedabad - Vadodara ,880 RAJASTHAN Jaipur - Deoli ,733 KARNATAKA Tumkur - Chitradurga ,142 TAMIL NADU Omallur - Salem - Namakkal PUNJAB Pathankot - Amritsar ,445.3 Total 1,348 16,621.6 PROJECTS UNDER IMPLEMENTATION LOCATION TYPE OF PROJECT (OPERATIONAL/ UNDER CONSTRUCTION) PROJECT LENGTH (Kms) PROJECT COST (~` in Crores) Maharashtra Solapur - Yedeshi Under Construction ,492 Yedeshi - Aurangabad Under Construction ,177 Mumbai - Pune (Phase II) Karnataka Goa / Karnataka Border to Kundapur FC achieved. Commencement Order is awaited ,190 Under Construction ,639 Haryana Kaithal - Rajasthan Border Under Construction ,290 Uttar Pradesh Agra - Etawah Financial Closure achieved in June ,523 Received appointed date and commenced construction in August Total ,311 11

14 Delivering Value the B.E.S.T. Way! Annual Report Key Performance Indicators REVENUE (` in Crores) 3,258 3,822 3,853 3,961 5,254 EBITDA (` in Crores) 1,495 1,768 1,875 2,325 2, Increase in projects under execution has resulted in higher construction revenue, and increase in operational projects, coupled with rise in tariff and traffic, has led to higher operational revenue. These have led to an increase in consolidated revenue over the years. PROFIT AFTER TAX (` in Crores) EARNINGS PER SHARE (`) CASH EPS (`) NET DEBT (` in Crores) 5,251 7,305 9,583 10,970 13, Due to an increase in more number of projects under operation, there has been a commensurate increase in depreciation and amortisation. This being non-cash expense, it has led to higher Cash EPS. Increase in debt is commensurate with the increase in number of projects and increase in size of the projects. 12

15 Corporate Overview Statutory Reports Financial Statements BOT ASSETS (` in Crores) 7,615 9,945 12,579 14,388 17,163 CAPITAL EMPLOYED (` in Crores) 9,928 12,032 14,643 16,936 19, NET WORTH (` in Crores) 2,857 3,256 3,561 4,361 4,827 DIVIDEND DISTRIBUTED (` in Crores) In line with the dividend policy of the Company, dividend paid to shareholders has increased with increase in profits. RETURN ON EQUITY (%) NET DEBT TO EQUITY RATIO Increasingly, concession period of new awards has been on the rise, moving up from earlier average of years to years. Hence, returns during the initial years of operations are comparatively muted. Increase in Debt is commensurate with the increase in number of projects and increase in size of projects. This led to drawal of Debt in these projects during construction phase. Hence, Net Debt to Equity Ratio has gone up over the years. 13

16 Delivering Value the B.E.S.T. Way! Annual Report Chairman and Managing Director s Communiqué Highways sector was a key beneficiary of the renewed thrust on the infrastructure sector. Around 4,370 kms of highway projects were awarded by the National Highways Authority of India (NHAI) in FY As per stated objectives of the government for the current year, kilometres to be awarded in FY may be more than doubled from the previous year, out of which BOT projects may constitute around 10-15%. In the last two years, the regulatory and funding environment for the infrastructure sector has seen considerable improvement, thus encouraging more private sector participation. On regulatory provisions, NHAI has been focussing on addressing land acquisition and environmental clearances to reduce future delays in project implementation after award of work. Aligned to this, the government s new policy that projects would be awarded only after more than 80% of the total required land is in possession is a welcome announcement. Further, it has also been working towards re-starting projects, which could not be commenced. Dear Stakeholders, In our journey of close to almost two decades, our motto has been: we are here to deliver sustainable value for all our stakeholders. FY was a satisfying year in our pursuit of value creation with some landmark developments. The highlight of the year was undoubtedly the early commencement of operations on NH-8 arm of Ahmedabad-Vadodara Project in December 2015 and your Company receiving registration of India s first ever Infrastructure Investment Trust (InvIT). More details on this and on the other developments a bit later in my letter; first a look at the fundamentals shaping the Roads and Highways sector. India s GDP growth of 7.6% in FY was the highest in five years, driven considerably by the government s continued focus on infrastructure development. The Roads and On the funding side, new avenues such as InvITs hold significant promise for unlocking value, which can be further invested into newer opportunities in highway sector. The announcement in Budget 2016 to provide exemption to InvITs from the levy of dividend distribution tax will help improve the potential returns for investors, thus making InvITs an attractive investment option. Last year, I mentioned in my message that we were enthused by SEBI s proposal for formation of InvITs. In this regard, FY was a seminal year for IRB towards the setting up of this Trust. In fact, I am delighted to share that we were the first in the country to receive registration certificate for IRB InvIT Fund in March With robust potential to unlock tied-up capital, InvIT can be a path-breaking initiative in our endeavour to maximise growth opportunities, while strengthening our balance sheet at the same time. In other landmark developments, we commenced toll collection on NH-8 stretch of Ahmedabad-Vadodara project. Demonstrating exemplary project execution, we completed the project well within time, thus enabling toll collection ahead 14

17 Corporate Overview Statutory Reports Financial Statements of schedule in December Another milestone that we crossed was the financial closure of the Agra-Etawah project by securing project finance of ` 1,650 Crores from consortium of Banks and Financial Institutions. Construction work has started on this project in August Mobilising domain expertise, people s experience and technical skills, we continued to deliver better value from both our construction and operation businesses. Construction revenues increased by 51% over last fiscal, while BOT segment reported a 14% increase in revenue. Projects under construction will facilitate steady uptick in construction revenue and profits. Our construction order book stands at ` 7,943 Crores, as on March 31, 2016, to be executed over the next few years. This reinforces our confidence and enthusiasm in our construction vertical and the next phase of growth. On the toll revenue front, most of the operational projects are witnessing healthy traffic growth and tariff revision in line with Wholesale Price Index. While we have seen the industry players showing substantial interest towards EPC and the recently introduced Hybrid Annuity Model (HAM) highway projects, at IRB, we remain focused on BOT projects. This bidding strategy, we believe, is well-founded as it will help us exploit our domain experience and expertise in the BOT space. This in turn will enable us to generate greater value from BOT projects than many other industry players. Further, competition in the BOT space is far less as fewer players in the industry have the necessary competency and proven experience to qualify for such projects, thus making available significant growth opportunities for a company of our calibre. Also, as with EPC and the HAM highway projects being partially funded by the government, these projects have The highlight of the year was undoubtedly the early commencement of operations on NH-8 arm of Ahmedabad-Vadodara Project in December 2015 and your Company receiving registration of India s first ever Infrastructure Investment Trust (InvIT). in recent times been witnessing intense competition, which may see reduced returns from investments. Lastly, while annuity payments in HAM projects would mean low project risk, returns from project can be lower too as revenue collection from tolls would not be the responsibility of the concessionaire. With our proven track record in generating sustained value from BOT projects, we have remained and will continue to remain clearly focused on our core area of strength. Before I conclude, I want to recognise and thank the talented and dedicated team of IRB for their consistent efforts and commitment. I would also like to thank all our stakeholders for their support and confidence. In our journey towards sustainable value creation, we will continue to seek your encouragement and participation. Virendra D. Mhaiskar Chairman & Managing Director 15

18 Delivering Value the B.E.S.T. Way! Annual Report Fostering value by clear focus on BOT Infrastructure creation in India is riding a new wave of optimism. Stalled projects are being revived and put on the fast track, while new projects are being cleared in an efficient manner by tapping speed and transparency. The message is clear: India wants to build what matters and build it fast. At IRB, we are proud to partner this positivity, pace and progress by bidding for BOT projects, which leverage our best expertise and capabilities. Roads and highways is an important thrust area under infrastructure development, with projects till recently being awarded in one of the three formats BOT annuity, BOT toll and EPC. A fourth model called Hybrid Annuity Model (HAM) was introduced by the government this year. 16

19 Corporate Overview Statutory Reports Financial Statements BOT Annuity Developer builds a highway, operates it for a specified time period and transfers it to the government, which pays the developer annuity over the concession period. BOT Toll Developer builds highways and recovers the cost from the toll levied on vehicles using the road as per concession agreement. EPC Contractor builds the road with set parameters funded by government. Hybrid Annuity Model (HAM) Mix of BOT Annuity and EPC models. Government commits up to 40% of the project cost during construction period and balance 60% is paid during the concession period as annuity. There is no toll/traffic risk for the developer. IRB stands pre-qualified to bid for approximately ` 17,500 Crores of road projects under NHAI annual pre-qualification norms. We will continue to follow a scientific and rigorous method of project evaluation and will bid for those that fulfil our expected returns criteria. Going forward, we will continue to bid for BOT Projects which can best leverage our capabilities and experience. Though several industry players are opting for projects under EPC route and the recently announced Hybrid Annuity Model (HAM), with our proven track record in the BOT toll roads, we will remain focussed on projects in BOT Toll road projects. This bidding strategy has strong roots. Higher competition and partial government funding in the EPC and HAM segment may reduce the returns from these projects. Also, fewer players are equipped with strengths needed for the BOT Toll road projects thereby reducing competition under this mode and in turn, presenting your Company with significant growth opportunities. Further, our experience guides us that our BOT strategy will serve us well even in the long run. For even though annuity payments in HAM projects would entail lower risk, we understand that returns from project would be lower too as revenue collection from tolls would not be the responsibility of the concessionaire. With our vision to deliver the sustainable value for our stakeholders, we will continue to tread the path of BOT Toll road projects and realise the full potential of the Company. The Ministry of Road Transport & Highways has set a target of constructing 15,000 kms of national highways in FY 16-17, which is more than double of the kilometres of national highways awarded in FY ,000 kms of road projects are expected to be awarded by the government in FY 16-17, as against 10,000 kms awarded in FY Of the total road awards, at least 10%-15% are expected to be awarded on BOT. With only few bidders of the size and scale of IRB, this positions us well to be a significant beneficiary of the opportunities, and continue resolutely on the path of delivering better value. 17

20 Delivering Value the B.E.S.T. Way! Annual Report Delivering value consistently with strong execution capabilities From concept to construction to commissioning; from operations to maintenance, we do it all in-house. And by straddling the entire value chain in our BOT projects, we deliver better value for the end-users, neighbouring communities, the nation, and for the stakeholders of the Company. Deliver challenging, complex highway projects on schedule and within budget, with uncompromising focus on quality - the tenet underpinning all IRB projects. And this is achieved because we are an integrated road BOT developer, carrying out EPC as well as operations and maintenance of BOT project in-house. Our projects are seamlessly executed by our experienced, skilled and dedicated workforce. Excellent project execution and project completion skills have earned us the credential of being amongst the leading developers in the BOT space. For carrying out the EPC segment of our BOT projects, we own a large fleet of well-maintained construction equipment. By investing in a repository of state-of-the-art equipment, we are able to exercise greater control over execution and timelines. This in turn leads to improved margins. Backward integration by sourcing raw materials such as stone aggregates from selfoperated leased mines also enables us to combat the vagaries of price increase and supply, while ensuring quality control and project completion in time. IRB s bank of in-house construction equipment Machinery Units Asphalt Hot Mix (Batch Mix Type) 15 Stone Crushers 19 Concrete Batch Mix Plant 13 Wet Mix Plant 9 Rollers 105 Sensor Pavers 39 Loaders 79 And many more... Note: Machinery performing similar function but having different strengths/capacity/characteristics have been clubbed together. 18

21 Corporate Overview Statutory Reports Financial Statements The integrated set-up gets a further fillip as operations are supported by latest IT tools. Cutting-edge technologies, automation and integrated project management solutions are implemented across the entire project lifecycle from design, procurement, construction to operations. This helps us in gaining end-to-end project visibility, control, high operational effectiveness and risk management. Our proficiency in project execution has ensured that we achieve projected internal rate of return (IRR) for our projects. This in turn strengthens our balance sheet, and creates sustained value for our stakeholders. 19

22 Delivering Value the B.E.S.T. Way! Annual Report Sustainable value creation by stabilising operations With our eyes set on transforming our BOT projects into long-term income generating assets, we perceive stabilisation of operations as a business imperative. And facilitated by the government s thrust on accelerating economic activity, which will lead to higher road traffic and correspondingly, higher toll revenues; we firmly believe we are on the path to create sustained value. 20

23 Corporate Overview Statutory Reports Financial Statements IRB has an established portfolio of 20 BOT assets, which are 100% toll-based. Toll-based assets help the Company in creating consistent cash flow streams. This leads to significant appreciation of capital over time. Over the last five years, our BOT asset base has grown by over 23%. Steady growth in BOT Assets (` in Crores) 7,615 9,945 12,579 14,388 17,163 Toll Revenue growth in FY15-16 vis-a-vis FY14-15 at our major projects ` Sr. Name of Projects % No. 1 Surat - Dahisar Ahmedabad - Vadodara 39.67* Large part of our project portfolio is along high traffic density corridors. Additionally, we hold over 13% share of the Golden Quadrilateral, again India s busiest corridors. Efficient project execution through an integrated set-up has enabled us to generate significant value from these projects by way of substantial and assured toll collection. With the expected upswing in economic activity, we remain confident that our strategically located projects will see steady uptick in vehicle traffic growth, thereby generating even higher revenues. 3 Tumkur - Chitradurga Mumbai - Pune *Toll collection on NH-8 arm started in December 2015 Average Gross Daily Toll Collection (` in Crores) BOT Toll Revenue (` in Crores) 1,229 1,411 1,674 2,093 2, On most projects, the toll revenue has increased over the years due to traffic & tariff growth. Hence, consolidated toll revenue has been registering growth Y-o-Y basis. Toll Revenue for FY15-16 has increased by around 14% as compared to FY

24 Delivering Value the B.E.S.T. Way! Annual Report Unlocking value by InvIT Inspired to create value for stakeholders of IRB, we have covered significant ground by registering India s first Infrastructure Investment Trust (InvIT). With tremendous potential to unlock tied-up capital, InvIT can be a game changer in our endeavour to maximise growth opportunities. 22

25 Corporate Overview Statutory Reports Financial Statements Understanding InvITs InvITs are trusts which manage income generating infrastructure assets, typically offering investors regular yields with growth potential and a liquid method of investing in infrastructure projects. Designed to serve the specific requirements of the infrastructure sector, InvITs are like mutual funds, which enable direct investment of money from possible high networth individual/institutional investors in infrastructure to earn regular income as return. For infrastructure developers and companies, InvITs serve as an investment vehicle to monetise operational assets. An investment vehicle to transform India s infrastructure growth Project funding is critical for infrastructure projects as they entail huge capital outlays and have a longer gestation period. Yet the availability of project finance is not easily forthcoming. To address the funding issue and reduce the burden on the Indian banking system, SEBI introduced InvITs, the regulations of which were first introduced in July The tax and regulatory framework for InvITs has evolved over the last two years and now InvITs provide significant advantages to both investors and developers, and thus facilitate infrastructure creation and unlocking value. The announcement in Budget 2016 to provide exemption to InvITs from the levy of dividend distribution tax has provided the much-needed impetus for their setup. Advantages of InvITs An InvIT is expected to offer the following benefits: Unlock tied-up capital of developers for reinvestment into new infrastructure projects. Reduce pressure on the banks by freeing up/reducing loan exposure, and thereby arm them with greater financial flexibility for new funding requirements. Attract foreign capital into Indian infrastructure sector. Enable the investors to hold a diversified portfolio of infrastructure assets. Facilitate higher standards of governance and transparency into infrastructure development and management and distribution of income from assets so as to attract investor interest. IRB s steps in this direction With a vision to partner the nation on the road to rapid infrastructure development, IRB has been working towards setting up of its Infrastructure Investment Trust (InvITs) during the year under review. We are the first company to announce plans for the setting up of an InvIT and also the first to receive registration of the InvIT in March Expected benefits to IRB from listing of InvIT IRB has a large portfolio of income generating infrastructure projects. Out of this, the Company can transfer some of the income generating BOT projects to InvIT. IRB will act as the sponsor of the InvIT. The transfer of assets to InvIT and subsequent listing of InvIT can enable us to unlock capital invested in these projects which can be utilised for the growth of the Company, lower the indebtedness and attract long-term finance from long-term investors. The funds generated can be utilised for investments in new projects, thus bringing in growth opportunities. Setting up a virtuous circle. Strengthening value creation. Transfer assets to InvIT and unlock capital for reinvestment Bid for the viable projects Setting up a virtuous circle. Strengthening value creation. Stabilise operations by commencing toll collection & maintenance activities Demonstrate excellence in execution by timely execution in given cost 23

26 Delivering Value the B.E.S.T. Way! Annual Report Enhancing value by building seamless connections Ahmedabad Vadodara Project 24

27 Corporate Overview Statutory Reports Financial Statements Ahmedabad, the largest city in Gujarat, and Vadodara, the state s third-largest city, are among the most vibrant cities of India, both in the economic and social sense. Life moves at a brisk speed in these cities. And now, traffic between these cities can also move at a faster pace and with added safety and comfort. IRB has transformed twolane Ahmedabad Vadodara section of NH-8 into a six-lane super expressway and improved the existing Expressway as well. IRB had won the project in 2011 to expand Ahmedabad to Vadodara section of NH-8 (6.40 kms to kms) in Gujarat from two to six lanes and to undertake improvements of an existing section of NE-1 (0.00 kms to kms) in Gujarat for a total length of kms under NHDP Phase V on a DBFOT basis. Project construction was expected to be completed by H2 FY and subsequently, toll collection on NH-8 was to commence. Once again demonstrating exemplary project execution, we completed the project well within time, enabling us to commence toll collection on NH-8 arm from December 2015 again ahead of schedule. Toll collection on NE-1 had already commenced in The total toll collection for the year from this project stood at ` 219 Crores. Not only does the highway offer faster and better connectivity between the cities, but by providing smooth & safe roads, it also provides superior comfort in the journey and enhanced vehicle life & fuel saving advantages. Electronic Toll Collection (ETC) based on the Radio Frequency Identification (RFID) technology is the latest initiative being implemented across National Highways to facilitate transparency, speed and convenience in toll collection. Under the system, an RFID chipembedded sticker is put on the vehicles allowing deduction of money at toll plazas automatically as they pass by, instead of the vehicles having to stop to pay by cash. A pilot project has been completed on the Ahmedabad-Vadodara expressway, with 28 lanes equipped with the new RFID-based ETC system. In the near future, automated tolling system is expected to be implemented throughout the country. 25

28 Delivering Value the B.E.S.T. Way! Annual Report On course for generating incremental value Construction highlights Project Execution Construction work on following project is in progress. Goa Karnataka Border - Kundapur Solapur - Yedeshi Yedeshi - Aurangabad Kaithal - Rajasthan Border Project 26

29 Corporate Overview Statutory Reports Financial Statements Project Operations Amritsar-Pathankot project toll collection has seen steady uptick in traffic volume. Commenced toll collection on NH-8 stretch of Ahmedabad-Vadodara project ahead of schedule in December Most of the operational projects have witnessed healthy traffic growth and revision of tariff rates, commensurate with Wholesale Price Index resulting in increase in toll revenue. Interest cost and amortisation increased commensurately. Agra-Etawah project has achieved financial closure in June Received appointed date and commenced construction in August

30 Delivering Value the B.E.S.T. Way! Annual Report Embracing value creation for community welfare At IRB Group, we firmly believe that to truly increase stakeholder value, our actions must be aligned towards bringing value to our communities as well. We must work towards creating sustained benefits so as to promote inclusive growth. 28

31 Corporate Overview Statutory Reports Financial Statements Backed by this strong sense of social responsibility, we have undertaken several initiatives to contribute to the well-being of our community. Education, Healthcare and Gender Equality are the key focus areas where we have fostered a positive impact. Education IRB Group is successfully running a model IRB Primary School for the children of the village Maalion Ka Jhopra at Tonk district in Rajasthan. The school caters to the educational requirements of the underprivileged and traditional segments of Rajasthan. 311 children are being provided free education, uniform and books. An important endeavour of the school is to reduce gender discrimination in this socially backward region by encouraging the education of girls. The efforts have proved fruitful with the school bearing the distinction of having more girl students (161) than boys (150). This success has inspired us to build a school in the Pathankot district of Punjab, near our Amritsar Pathankot BOT project. The school is currently under construction. Besides building schools, our focussed efforts in the field of education include providing merit-based scholarships to students through endowments. IRB Group also contributes funds to educational and social institutes to promote their educational and social activities. Healthcare The Group has always been known to look after the welfare of its employees. Management has always ensured that employees or their families do not face hardships during the time when employees suffer from injuries or serious sickness. Financial aid on humanitarian grounds has routinely been extended to the families of even deceased employees. The Group has, therefore, introduced a Medical Insurance Policy for employees of the Company. Premium for this medical insurance policy will be borne completely by the Company. The Company has been generously contributing to the various institutions which are engaged in providing primary as well as advance healthcare facilities to the public. The Company also contributed towards provision of sanitation facilities. Other CSR activities IRB Group makes regular financial contribution to support and foster sport and artistic talent. Over the last few years, we have come up with annual calendars, based on the jury selected paintings of artists from Sir J.J. School of Arts, Mumbai. The original paintings of these artists are sold at private auctions and the funds generated are used to promote upcoming talent from the same field. To provide support to the drought-affected victims in Maharashtra, we have made generous contributions to the Chief Minister s drought relief fund in the past. 29

32 Delivering Value the B.E.S.T. Way! Annual Report The Board of Directors 1. Virendra D. Mhaiskar Chairman & Managing Director Mr. Mhaiskar holds a diploma in civil engineering from Shriram Polytechnic, Navi Mumbai. As a Civil Engineer, he has handson experience of more than 25 years in the construction and infrastructure industry to his credit. He is responsible for developing new business, executing road construction and BOT projects. He provides the overall vision and strategy to the Company. 2. Deepali V. Mhaiskar Wholetime Director Mrs. Mhaiskar is a graduate in Arts with major in Economics from L. D. Arts College, Ahmedabad, Gujarat. She is the Director of IRB since incorporation of the Company. She has more than 16 years of experience in Administration and Management. She is looking after the administration of the Company. 3. Sudhir R. Hoshing Joint Managing Director Mr. Hoshing, is a Civil Engineer and a management graduate, has more than 30 years of experience in Highway and Airport construction. He has held key positions with major infrastructure companies. He is a member and on the Executive Board of IRF (International Road Federation, Indian chapter), FICCI, CII and NHBF (National Highways Builders Association). He is also a lifetime member of IRC (Indian Road Congress). 4. Mukeshlal P. Gupta Wholetime Director Mr. Gupta, a Civil Engineer by profession, has more than 37 years of experience in the Engineering & Construction industry. He has a strong background in designing and executing civil structures and has worked for reputed engineering consulting and design firms. Over the past five years, he has been closely associated in technical monitoring and guiding the projects undertaken by Modern Road Makers Private Limited. He is also a member of Indian Road Congress and Institution of Engineers (India). 5. Sunil H. Talati Independent Director Mr. Talati holds a Bachelor s degree in law from Gujarat University and a Master s degree in commerce from H.L. Commerce College, Ahmedabad. He is also a Fellow member of the Institute of Chartered Accountants of India and was the Vice President and President of the Institute of Chartered Accountants of India for the year and respectively. He has more than 30 years of experience in the fields of Accounts, Audit and Tax Law. 6. Chandrashekhar S. Kaptan Independent Director Mr. Kaptan is a practicing Lawyer at Nagpur Bench of the Mumbai High Court since 1975 representing Government, semi Government and private institutions in constitutional and civil matters. Mr. Kaptan has several years of experience in Constitutional and Excise matters. 7. Sandeep J. Shah Independent Director Mr. Shah is a member of Institute of Chartered Accountants of India since August He joined M/s. J. M. Shah & Co. as a Partner in From 2011, he has been a Partner in Shah & Baxi Associates. He is a practicing Chartered Accountant for more than 32 years. He specialises in Company Audit and Direct Tax. 8. Sunil Tandon Independent Director Mr. Tandon is a former Indian Administrative Service Officer. He has held senior positions in State and Central governments. He has been credited with initialising and successfully implementing several large Public Private Partnership projects in India. With more than 30 years of work experience in the private sector and in the government, Mr. Tandon s experience spans the entire spectrum from policy formulation to implementation of policy. He has a Masters degree in Business Administration from Strathclyde Business School, UK, with a specialisation in Financial Management. 30

33 Corporate Overview Statutory Reports Financial Statements The Executive Team 1. Ajay P. Deshmukh Chief Executive Officer - Infrastructure Mr. Deshmukh is responsible for the construction projects planning, execution, maintenance and toll operations areas of the Company. A Civil Engineer, he has more than 22 years of experience in the industry. 2. Dhananjay K. Joshi Chief Executive Officer - Corporate Affairs, Realty and Airport Mr. Joshi is responsible for the project finance, corporate affairs, airport and realty areas of the Company. He has more than 17 years of experience in the industry. He is a commerce graduate and he holds degrees in Law and Business Administration. 3. Rajpaul S. Sharma Head - Contract Management Mr. Sharma is responsible for evaluation and budgeting of new projects, finalising contracts and ensuring completion of projects within approved budgets. A Civil Engineer, he has more than 24 years of experience in the industry. 4. N. M. P. Nair Director - Operations Mr. Nair is responsible for planning, establishing, operating and maintaining plants and machinery for the construction and maintenance projects of the Company. A commerce graduate, he has more than 30 years of experience in the industry. 5. Anil D. Yadav Group Chief Finance Officer Mr. Yadav, a qualified Chartered Accountant, is responsible for the Company s Accounts, Taxation and finance functions. He has more than 10 years of experience in this field. He also holds a degree in Law. 6. Mehul N. Patel President - Corporate Affairs & Group Company Secretary Mr. Patel is responsible for the corporate secretarial and statutory compliance functions of the Company. He has a degree in Law and is a Company Secretary. He has more than 15 years of experience in this field. 8. Rajesh Thamman Head - Procurement Mr. Thamman is responsible for economical procurement of construction materials and ensuring timely supplies to all projects of the Company. A Mechanical Engineer, he has more than 30 years of experience in the industry. 9. Nitin V. Bansode Head - Toll Operations Mr. Bansode is responsible for the tolling operations of projects and enhancing revenue from tolling operations for the Company. He has more than 22 years of experience and has a Masters degree in Commerce. 10. Mandar R. Jadhav Head - IT Mr. Jadhav is responsible for the IT infrastructure and IT support for all activities of the Company. He has more than 12 years of experience in the industry and has a Diploma in Production Technology. 11. Rajendra K. Agarwal Head - Project Construction Mr. Agrawal is responsible for the execution and management of all highway infrastructure projects under construction. A Civil Engineer, he has more than 26 years of experience in the industry. 12. Prabhu D. Arora Head - O&M (NHAI Projects) Mr. Arora is responsible for the maintenance of operational projects to ensure unhindered and best in class commuter experience. He has a Masters degree in Engineering and has more than 34 years of experience in the industry. 13. D. D. Gadgil Head - Real Estate, Airport and Hospitality Mr. Gadgil is responsible for the real estate and greenfield airport development areas of the Company. He is a graduate in Engineering (Instrumentation and Control) and has more than 32 years of experience. 7. Wg. Cdr. Naresh Taneja President - Human Resource and Administration Wg. Cdr. Naresh Taneja is responsible for the human resources, administration and CSR acitivties of the Group. He has Masters degrees in Psychology and Defence Studies and has more than 38 years of experience. 31

34 Delivering Value the B.E.S.T. Way! Annual Report Statutory Reports Financial Statements 33 Management Discussion and Analysis 37 Board s Report 78 Corporate Governance Report Consolidated Financial Statements 94 Independent Auditor s Report 98 Consolidated Balance Sheet 99 Consolidated Statement of Profit and Loss 100 Consolidated Cash Flow Statement 102 Standalone Financial Statements 139 Independent Auditor s Report 144 Balance Sheet 145 Statement of Profit and Loss 146 Cash Flow Statement Form AOC - I

35 Corporate Overview Statutory Reports Financial Statements Management Discussion and Analysis 1. INFRASTRUCTURE INDUSTRY OVERVIEW & OUTLOOK India s infrastructure industry, including the road sector, was in the recovery mode during FY The Government has been undertaking initiatives to revive entrepreneurs interests in the road sector through innovative models like Hybrid Annuity. As a result, around 4,370 kms ([approx. 873 km of Build-Operate-Transfer (BOT) projects, 346 Km of Hyrbid Annuity projects, 3,150 km of Engineering-Procurement-Construction (EPC) projects]) of National Highways improvement work were awarded by the National Highways Authority of India (NHAI) in FY Most of the bids saw good participation gradually towards the year end, especially in Hybrid Annuity bids. NHAI has been focusing on addressing land acquisition and environmental clearances for its upcoming projects. It is learnt that the Cabinet Committee on Infrastructure has stipulated that financial bids shall be invited only after 80% of land has been acquired and environmental clearance has been obtained. This will help to reduce any future delays in project implementation after award of work. 2. SECTOR OVERVIEW: ROADS AND HIGHWAYS The Government launched major initiatives to upgrade and strengthen National Highways through various phases of the National Highways Development Project (NHDP). NHDP stands apart as one of the world s largest road development programmes undertaken by a single authority. It helps to widen, upgrade and rehabilitate about 54,000 kms of roads. Though number of road projects awarded on BOT (Toll) mode remained lower during FY , the Government s efforts to evolve new, flexible policies to create investor-friendly highway development initiatives have already started the process of recouping the deficit of last three years. The next fiscal is likely to show an increase in BOT (toll) bids with the Government aiming to build 25 kms per day of roads. 3. COMPANY AND BUSINESS OVERVIEW A. Company Overview IRB Infrastructure Developers Ltd. (IRB), incorporated in 1998, has strong in-house integrated project execution capabilities in both its business verticals viz. Construction and Operation & Maintenance of Highways. It is the first mover and pioneer in the road BOT business and is one of India s largest road BOT operators with a rich portfolio of 20 Road BOT projects. It also has approximately 13% share of the golden quadrilateral highway network. IRB s construction business complements its BOT vertical by executing the engineering, procurement and construction (EPC) and operation and management (O&M) aspects of BOT concessions. Over the years, IRB has developed rich, in-house expertise in both EPC and O&M verticals. Out of IRB s 20 current road projects, 14 are operational, while 6 are under various phases of implementation. The Company s major clients are government agencies, such as NHAI and State Road Development Authorities, which engage in the development of the country s highways. In the last few years, IRB has been strategically expanding its footprint in states other than Maharashtra and Gujarat. Its road assets portfolio is across eight states. On a per lane kilometers basis, its geographic spread is 37% in Maharashtra, 21% in Gujarat, 15% in Karnataka, 7% in Haryana, 6% in Rajasthan, 7% in Uttar Pradesh, 4% in Punjab and 3% in Tamil Nadu. B. BUSINESS OVERVIEW (I) Construction and development (EPC) IRB has successfully constructed more than 5,911 lane kms of highways on BOT basis, while 3,188 lane kms is under construction and 747 lane kms where construction is yet to commence. This includes improvement of National Highway and sections of the Golden Quadrilateral Highway Network. IRB s integrated approach towards project execution involves in-house constructing as well as operating and maintaining activities with least outsourcing. Its large pool of equipment and skilled and experienced manpower help IRB to complete projects within budget and in time. This experienced manpower also helps the Company to manage the entire tolling and maintenance functions in-house during operations phase. An evolving IT infrastructure set up provides finesse to these integrated methods of conducting business. The Company s construction order book as on March 31, 2016 stands at approx. ` 7,943 Crores to be executed over the next two and half years. Ahmedabad Vadodara Project has commenced commercial operations on the NH-8 in December Works on under implementation projects is in progress. 33

36 Delivering Value the B.E.S.T Way! Annual Report (II) Operations and Maintenance (O&M) out of Internal Accruals and Equity. IRB has 14 projects under operations and maintenance. IRB has in-house expertise in handling the operation and maintenance of BOT road Projects. The Company routinely carries out maintenance of toll roads, including periodic and major maintenance. Its O&M work has won many accolades in the past. IRB has been awarded CNBC TV18 Essar Steel Infrastructure Excellence Award in the Highways and Flyovers category for its Mumbai Pune section of National Highways (NH-4) in FY and Bharuch Surat Section of NH-8 in FY FINANCIAL ANALYSIS BOT Assets Net block in BOT Assets, both operational as well as under construction, have grown significantly from ` 2,674 Crores in FY to ` 17,163 Crores in FY , registering a compound annual growth rate (CAGR) of 26%. As is the norm for financing Highway BOT projects, debt funds from project lenders have been the major source of funding these projects. The project lenders have reposed trust in the Company s financial strength, demonstrated by healthy growth in internal accruals and net worth. Besides, they have also shown faith in the Company s project execution capabilities. This trust of the project lenders has played a primary role in helping IRB to achieve required financial closures. Since the initial public offering (IPO) in 2008, net worth grew at 15% CAGR from ` 1,621 Crores in FY to ` 4,827 Crores in FY This growth was largely driven by healthy earnings during this period. Consequently, net Debt Equity Ratio (DER) touched 2.78 in March This was driven by the investments undertaken over the last three years. IRB invested in projects that were under construction and are now in operation. With this, it has augmented capacity to invest in new projects that may be secured on a diligent evaluation of their risks and commercial viability. During the year, IRB has made project investments of ` 3,460 Crores in BOT Assets under Construction. This was funded by project debt of ` 2,685 Crores and internal accruals of ` 775 Crores. These projects require a further investment of approx ` 9,620 Crores across the next two and half years, before they can commence commercial operations. The investments will be funded largely through Project Debt of ` 5,150 Crores, Grant of ` 1,520 Crores and the balance Commercial operations have commenced on NH-8 arm of Ahmedabad - Vadodara project. This is helping in the rise of cash flows from toll operations. This increase, along with steady cash flow from construction activities, enhances the Company s confidence of generating internal accruals, sufficient enough to infuse its balance equity commitment in the projects in hand. Internal accruals are generated even after providing for debt repayments as well as dividend payouts, in line with its dividend policy. Total consolidated income increased by 33% from ` 3,962 Crores in FY to ` 5,254 Crores in FY Revenue from operations increased by 33% to ` 5,130 Crores in FY against ` 3,849 Crores in FY Consolidated construction revenue registered an increase of 51% from ` 2,013 Crores in FY to ` 3,031 Crores in FY In line with economic growth in the country, the Company has seen healthy growth in toll revenues. The consolidated toll revenues (net of revenue share) increased by 14% from ` 1,836 Crores in FY to ` 2,099 Crores in FY Other Income registered an increase of 10% from ` 113 Crores in FY to ` 124 Crores in FY Earnings Before Interest, Tax, Depreciation & Amortisation (EBITDA) increased from ` 2,325 Crores in FY to ` 2,785 Crores in FY , up by 20%. Interest costs increased by 14% from ` 931 Crores in FY to ` 1,063 Crores in FY mainly because of NH-8 section of Ahmedabad-Vadodara becoming operational during the year. Depreciation of ` 707 Crores in FY rose by 21% to ` 853 Crores in FY As a result, Profit before Tax (PBT) registered an increase of 27% from ` 686 Crores in FY to ` 868 Crores in FY Post minority interest, Profit after Tax (PAT) also rose by 17%, from ` 543 Crores in FY to ` 636 Crores in FY Earnings per share on basic and diluted basis, which stood at ` in FY from ` in FY , registered a growth of 11% YoY. 34

37 Corporate Overview Statutory Reports Financial Statements During the year, the Company declared interim dividends aggregating to ` 4 per equity share of ` 10 each. The Company s various special purpose vehicles (SPVs) have raised project-term loans to meet ongoing construction cost of BOT projects. IRB s consolidated debt on net basis, as on March 31, 2016, is ` 13,418 Crores, compared to ` 10,971 Crores a year ago. This increase was primarily on account of drawing of loans for various under construction projects, such as Ahmedabad-Vadodara, Goa-Kundapur, Solapur-Yedeshi, Yedeshi-Aurangabad and Kaithal-Rajasthan Projects. 5. INORGANIC GROWTH In line with its strategy to grow inorganically, IRB has been evaluating various BOT projects in the secondary markets. However, since there is a substantial gap between the expectation of the seller and the potential buyer of the projects there were no acquisitions last year. Going forward, the Company would like to focus on new projects to be awarded by NHAI rather than the acquisition of road assets. 6. KEY COMPETITIVE ADVANTAGE The following key advantages enabled IRB to emerge as one of the market leaders: Proven track record of successfully accomplishing all phases of BOT Projects in the highway sector Robust construction order book of approximately ` 7,943 Crores (as on March 31, 2016) One of the largest domestic BOT project portfolios in the Roads and Highway sector 20 BOT projects, out of which 14 are operational Strong financial track record and healthy banking relationship with leading banks/financial institutions Integrated and efficient project execution capabilities, supported by comprehensive equipment bank Professionally-managed Company with qualified and skilled employee base. 7. RISKS AND CHALLENGES The Company s ability to foresee and manage business risks is crucial in its efforts to achieve favourable results. While management is positive about the Company s longterm outlook, it is subject to a few risks and uncertainties, as discussed below. Competition Risk Attractive growth opportunities exist in the construction sector, especially with the Government going full throttle on infrastructure creation. This may increase the number of players operating in the industry. Notwithstanding these challenges, backed by its industry leading experience in the road and highway sector, the Company is confident of meeting present and future competition. Further, the Company has carved a niche position for itself in the BOT vertical. Higher competencies including financial strength required for this segment create entry barriers for new entrants, thereby reducing competition in the Company s area of operation. In addition, as a prudent and strategic measure, the Company will continue to bid for projects based on their financial, operational and execution viability. Availability of capital and interest rate risk Infrastructure projects are typically capital intensive and require high levels of long-term debt financing. IRB intends to pursue a strategy of continued investment in infrastructure development projects. In the past, the Company was able to infuse equity and arrange for debt financing to develop infrastructure projects on acceptable terms for the projects. However, IRB believes that its ability to continue to arrange for capital requirements is dependent on various factors. These factors include: timing and internal accruals generation; timing and size of the projects awarded; credit availability from banks and financial institutions; the success of its current infrastructure development projects. Besides, there are also several other factors outside its control. However, your Company s track record has enabled it to raise funds at competitive rates. The Company s average cost of debt remains at 10.75% p.a. Further, IRB has availed External Commercial Borrowing (ECB) facility for its Jaipur-Deoli, Tumkur-Chitradurga, Pathankot-Amritsar and Ahmedabad-Vadodara Projects, which helps it to reduce the interest rate burden. Additionally, IRB has already registered IRB INVIT Fund, an Infrastructure Investment Trust (InvITs) with SEBI. IRB intends to subsequently sell its shareholding in some of its SPVs, as may be permitted under SEBI InvIT Regulations & Concessioning Authorities guidelines from time to time, to the InvIT, so as to enable generation of funds commensurate with valuation of its holdings in the SPVs. This will enable it to unlock capital invested in SPVs. Traffic growth risk Toll revenue is a function of the toll rates and traffic growth. 35

38 Delivering Value the B.E.S.T Way! Annual Report Toll rates: The Government has been implementing a policy of linking toll rates increase to change in Wholesale Price Index (WPI). The toll rates of the Company s Bharuch- Surat and Surat-Dahisar Projects are linked to average WPI. However, the toll rates for the projects awarded after 2008 are decided according to a formula, which is 3% plus 40% of average WPI. The Company s all other projects have fixed annual or periodical increase in their toll rates, according to their Concession Agreement. Traffic Rapid economic development increases traffic growth while low economic activity has a negative impact on traffic volume. Most of the Company s projects are part of India s Golden Quadrilateral corridor or are key connectors between India s busiest highways or economic/social hubs. This includes road projects such as Ahmedabad Vadodara, Bharuch Surat, Surat Dahisar, Mumbai Pune and many others. For their strategic connectivity, these projects are expected to record continued momentum in traffic growth in the coming years, which negates the risk of slowdown in traffic growth to a considerable extent. Moreover, the pickup in economic activity has lead to higher traffic growth in the roads sector. With passage of time, even road projects which have been witnessing muted traffic growth can be expected to benefit from the uptick in economic growth. Input cost risk Raw materials, such as bitumen, stone aggregates cement and steel, need to be supplied continuously to complete projects. There is also a risk of cost escalation or raw material shortage. The Company s extensive experience, its industry standing and bulk purchases have helped it to plan and procure raw materials at competitive rates. Moreover, the Company procures stone aggregates from its self-operated leased mines which ensures quality and lowers the cost, as compared to bought out aggregates. Besides, it also reduces supply disruption or price escalation. Labour risk The timely availability of skilled and technical personnel is one of the key industry challenges. The Company maintains healthy and motivating work environment through various measures. This has helped it recruit and retain skilled workforce and, in turn, complete the projects in time. 8. HUMAN RESOURCE MANAGEMENT IRB has a large pool of experienced and skilled technical manpower, with which IRB executes world-class projects and delivers excellent quality, which have become synonymous with IRB. IRB aims to keep its employees continuously updated with the technical knowledge and emerging technologies relating to construction of roads and structures and toll collection systems. Hence, IRB nominates its executives to attend seminars and symposiums conducted by professional bodies of global repute. Employees are also nominated to attend other professional skill-building programmes. IRB s reputation of providing a congenial work environment that respects individuals and encourages professional growth, innovation and superior performance, acts as a strong pull to attract new industry talent. Human resources continue to be one of the core focus areas of the Company. Respect for individual, open work culture, effective communication, fair and equitable treatment and welfare of employees are significant value propositions, which help IRB to retain a highly engaged talent pool and generate high level of trust among its employees. IRB remains the employer of choice with one of the lowest attrition rates in the infrastructure sector of less than 1% for several years. 9. INTERNAL CONTROL SYSTEMS IRB maintains adequate internal control systems including internal financial control systems, which provide, among other things, reasonable assurance of recording the transactions of its operations in all material respects. This system also protects against significant misuse or loss of Company assets. IRB has a strong and independent internal audit function. The Internal Auditor reports directly to the Chairman of the Audit Committee. Periodic audits by the professionally qualified, technical and financial personnel of the internal audit function ensure that the Company s internal control systems are adequate and are complied with. CAUTIONARY STATEMENT IRB, the Company are interchangeably used and mean IRB Group or IRB Infrastructure Developers Ltd. as may be applicable. Statements in the Management Discussion and Analysis describing the Company s objectives, projections, estimates, expectations may be forward looking statements within the meaning of applicable securities, laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could influence the Company s operations include economic developments within the country, demand and supply conditions in the industry, input prices, interest rates, currency rates, changes in Government regulations, tax laws and other factors such as litigation and industrial relations. 36

39 Corporate Overview Statutory Reports Financial Statements Board s Report Dear Stakeholders, Your Directors have pleasure in presenting their 18th report on the business and operations, along with the audited financial statements of your Company, for the year ended March 31, (Amount in ` Crores) Particulars Consolidated Standalone Year ended March 31, 2016 Year ended March 31, 2015 Year ended March 31, 2016 Year ended March 31, 2015 Total Income 5, , , , Total Expenditure 4, , , , Profit before tax Less: Provision for tax Current tax MAT Credit Entitlement (82.25) (75.41) - - Deferred tax (2.11) 2.62 (0.01) (0.17) Profit after tax before minority interest Less: Minority interest 0.45 (0.55) - - Profit after tax and after minority interest Add: Profit at the beginning of the year 2, , Profit available for appropriation 2, , Appropriations: Interim Dividend/Proposed Interim Dividend Tax on equity dividend Transfer to General Reserve Adjustment for depreciation on account of transitional provisions as per Companies Act, 2013 Balance Carried Forward to Balance Sheet 2, ,